S&P 500 investors braced for the worst coming into this year. But they should have prepared for the best.
Stocks jumped nearly 5.5% in January, led by massive gains by the month's top stocks Warner Bros. Discovery, Western Digital and Tesla, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. The top eight S&P 500 stocks jumped more than 30% apiece in just one month. It was the S&P 500's best January since 2019, when it jumped 7.9%, says "Stock Trader's Almanac."
Seeing such big gains was a welcome sight in January. Coming into the year, the investment climate looked iffy. Inflation remains high and interest rates are rising. Plus, corporate earnings are slipping going into an expected recession. But now the hope is the Federal Reserve can knock it off with the rate hikes — and might actually lower them. Investors seem eager to get in early.
"Should history repeat, the (Fed) could start cutting rates toward the end of 2023, or early in 2024. If that occurs, how have components of the S&P 1500 traditionally performed in this nine-month pause period?" Sam Stovall of CFRA said. "Since 1995 ... all sizes, styles, sectors, and 99% of sub-industries posted average price increases, led by the financials and real estate sectors, with energy and materials pulling up the rear."
Sizing Up The S&P 500 In January
A 5.5% gain by the S&P 500 in January is just the start. Looking under the market's covers reveals a robust market.
So far this year, 370 stocks in the S&P 500, or nearly three quarters, are up. And some of the monthly gains are giant. More than 130 S&P 500 stocks rose 10% or more in just January. That's an impressive showing, as 10% is the average annual gain of the S&P 500 for a full year.
Leading the charge is entertainment network Warner Bros. Discovery. Shares are up more than 54% in January. Why? It's partially because the stock was one of the worst in the S&P 500 last year. Shares of the newly merged company dropped nearly 60% in 2022. In many ways, Warner Bros. Discovery is an example of a dominating theme this year: Last year's worst stocks are on fire.
Investors seem willing to look past a few rebuilding years. The media giant is seen losing $1.98 a share in 2022 and another 56 cents a share in 2023, until finally turning profitable in 2024.
Part of the rally is also due to Warner Bros. Discovery's sector: communication services. The sector plunged more than 40% last year, making it the worst S&P 500 sector, says S&P Global Market Intelligence. But that reversed in a big way this year, as communication rallied more than 9%, making it the best S&P 500 sector.
Other Big S&P 500 Leaders: Tesla And Western Digital
Lots of investors were willing to write off Tesla following the stock's 65% drop in 2022. But it turns out plenty of investors, including Cathie Wood, were ready to step in and buy.
Shares of the electric-car maker are up more than 39% just this year. Investors are charged up about the company's promising future. Yes, Tesla profit is seen sinking nearly 3% in 2023. But after that analysts think it's back off to the races. Analysts are calling for nearly 47% profit growth in 2024.
And then there's computer storage maker Western Digital. Shares jumped more than 37% in January, a remarkable turnaround from losing more than half their value in 2022. Analysts are braced for an ugly fiscal 2023, ended in June. The company is expected to lose 3 cents a share in the period. But pain won't last long. Western Digital is expected to make $2.83 in fiscal 2024 and more than twice that much in fiscal 2025.
Looks like many investors came into 2023 ready to buy.
Top S&P 500 Stocks In January
| Company | Symbol | Sector | YTD % Ch. |
|---|---|---|---|
| Warner Bros. Discovery | Communication Services | 54.6% | |
| Tesla | Consumer Discretionary | 39.9% | |
| Western Digital | Information Technology | 37.9% | |
| Paramount Global | Communication Services | 33.8% | |
| Nvidia | Information Technology | 33.0% | |
| Carnival | Consumer Discretionary | 33.0% | |
| MarketAxess Holdings | Financials | 30.2% | |
| Expedia Group | Consumer Discretionary | 29.8% |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
